Increased scrutiny by the Chinese government of health companies in the direct selling sector has intensified since December after high-profile incidents.
In December, Tianjin-based Quanjian Group was investigated for false advertising after it used the image of a girl who died of cancer in a promotional poster for cancer-fighting products. Eighteen employees of the company were later detained by authorities.
In January, authorities in Huanghua investigated Hualin Suanjianping Biotechnology Co. Ltd. on suspicion of deceiving customers and operating as a pyramid scheme. Hualin’s branch office in Shangqiu was closed by local authorities pending an investigation into whether its “pH-balancing massage therapy”—which entails stimulating the body with electrical pulses—was effective in strengthening the immune system as advertised. Such services had been previously criticized by health experts as having no basis in medical science.
Since the Quanjian incident, the State Administration of Market Supervision has attached great importance on promotional claims by health companies. On January 8, thirteen departments jointly launched a 100-day action to rectify the healthcare products market and banned local regulatory authorities. While evaluation of health products was being carried out, the Municipal Public Security Bureau requested that the relevant approvals and filings for direct sales be suspended.
In response to the action, a leading Chinese publication, The Paper, published a commentary noting that direct selling health product companies are able to thrive in China despite their business models because regulatory authorities—with an eye to boosting their local economies—tend to look the other way.
“Quanjian and Hualin would not have been able to expand to such a large scale, fooling so many customers, if laws and regulations had been strictly enforced,” the author wrote.
Direct selling companies in operating in China have actively cooperated with the 100-day action to regulate self-discipline. However, due to the increased scrutiny, many are now unwilling to disclose their financial achievements.
China is the second largest direct selling market in the world after the U.S. and home to some of the channel’s top direct selling companies. It is the largest market in the Asia-Pacific region, with 2017 sales of $34.3 billion. On its own, China accounted for 40 percent of the sales in the Asia-Pacific region in 2017. The World Federation of Direct Selling Associations estimates that some 5.3 million Chinese participate in direct selling.